ADVERTISEMENTThe European Bank for Reconstruction and Development (EBRD) has reduced its regional economic forecast for this year by 0.2% compared to its February 2025 predictions, as stated in its latest Regional Economic Prospects report launched on Tuesday.
The bank currently anticipates growth in the EBRD regions to be around 3% in 2025, with a slight increase to 3.4% expected for 2026.
Main reasons for this more pessimistic projection include the impact of tariff hikes and ongoing geopolitical tensions, affecting supply chains and trade; lagging external demand also plays a considerable role in this assessment.
High domestic demand, relaxed fiscal policies, and strong nominal wage growth contribute to the inflation rate in the EBRD regions. Following a dip to 5.3% in September 2024, the average inflation hit 6.1% in February this year.
The report forecasts that average debt in the EBRD regions will remain roughly steady, at approximately 52% of gross domestic product (GDP) over the next four years, assuming that governments will enforce stricter fiscal policies.
US tariffs could potentially disrupt global supply chains, especially in major European economies such as Germany. However, trading diversion, particularly in countries with lower tariffs, might help alleviate and evenly distribute the effects of increased US tariffs.
According to the EBRD, “the estimated average effective US tariff on imports from the Bank’s regions could rise from 1.8% in 2024 to 10.5%, assuming the composition of exports remains constant.”
EBRD’s chief economist, Beata Javorcik, commented in a press release: “It may take time to fully understand the macroeconomic effects of these recently announced tariffs, but it is already evident that our regions are entering a period of increased uncertainty and slower growth. Reducing trade tensions through constructive dialogue and achieving consensus on trade policy among key parties is crucial, as prolonged uncertainty will result in significant economic costs.”
EBRD Regions Expected to Be Most Impacted
The forecasts predict that the Western Balkans, Baltic states, and central European countries will experience the most substantial declines in growth.
The GDP of the Western Balkans is anticipated to be 3.2% in 2025, rising slightly to 3.4% next year, largely due to Serbian political instability and ripple effects from decreased growth in advanced Western European economies.
Economic growth for central Europe and the Baltic states is expected to be 2.4% this year and to increase to 2.7% in 2026. This is mainly due to the effects of new tariffs, slower external demand, especially from Germany, as well as higher global policy uncertainty.
Southeastern EU economies’ GDP is expected to increase to 2% in 2025, although this figure is still lower than earlier forecasts.
Central Asian economic growth is likely to decline to 5.5% this year and drop even further to 5.2% by 2026, largely due to falling commodity prices.
Economic growth in Southern and Eastern Mediterranean regions could reach 3.6% this year, with an expected increase to 3.9% in 2026.
Turkey’s GDP is expected to decline from 3.2% last year to 2.8% this year due to tighter-than-expected monetary policy and slower external and domestic demand, but is likely to bounce back to 3.5% by 2026.
Eastern Europe and the Caucasus regions will see a GDP of 3.5% in 2025, surging to 4.3% in 2026, although ongoing damage to Ukrainian energy infrastructure and weaker EU demand will likely dampen prospects for countries such as Moldova and Ukraine.
